The Emerging Opportunity for Green Hydrogen Production in India
Hydrogen is gaining attention as a potential game-changer in the global push towards decarbonization. It has a wide range of applications, from fuel cells for transportation and industry to energy storage for the power grid. However, the majority of hydrogen currently produced is from fossil fuels, which generates significant carbon emissions. The emergence of green hydrogen, produced through electrolysis powered by renewable energy, has the potential to revolutionize the hydrogen market by providing a clean, sustainable alternative. India, with its vast renewable energy potential and increasing focus on decarbonization, has an emerging opportunity to produce price-competitive green hydrogen.
Supply and Demand Dynamics of Green Hydrogen Production in India
The cost of green hydrogen production in India is determined primarily by the cost of electrolysers and electricity, along with other factors such as operating costs, transmission and distribution costs, and specific local duties and taxes. While the cost of hydrogen from electrolysis today is relatively high, between $7/kg and $4.10/kg depending on various technology choices, India has some of the most competitive levelized cost of electricity (LCOE) for solar and wind in the world. Therefore, expanding green hydrogen production in India makes more sense than the production of grey or blue hydrogen.
Soft Cost Reduction Pathway
While electrolyser and electricity costs will guide the long-term price trajectory of green hydrogen, there are soft cost elements that can help reduce green hydrogen production costs today to spur market development. Specifically targeting duty waiver and reduction of the goods and services tax (GST) and transmission and distribution (T&D) charges can reduce the levelized cost of hydrogen (LCOH) to around $3.2/kg in the best case, making it closer to becoming competitive with grey hydrogen. The Ministry of Power already waives inter-state transmission system charges for electricity generated from wind and solar, and extending this waiver to renewable-based hydrogen production can drastically improve the near-term economics of green hydrogen. In addition to these soft costs, India should strive to reduce renewable power tariffs for hydrogen production through revenue recycling of any carbon tax or coal cess, low-emissions power purchase agreements (PPAs), and avenues for firming electricity supply including discounted grid electricity to complement variable renewable energy (VRE) generation.
Future Price Trajectory of Green Hydrogen
With an expected price decline for both electrolysers and renewables, the cost of green hydrogen can fall to approximately $1.60/kg by 2030 and $0.70/kg by 2050 in the best-case scenario. Regardless of the scenario, green hydrogen can become competitive with grey hydrogen by 2030, if not earlier. Given the low LCOE of renewables, green hydrogen from standalone renewable systems or from renewable-to-hydrogen conversion (RTC) arrangements will be more cost-effective than grid-connected electrolysis. Additionally, while RTC renewables could be very cost-competitive today and in the near-term, there is a longer-term potential for green hydrogen generation from standalone renewables, provided LCOE decline expectations materialize.
Conclusion
The economics of green hydrogen production in India are promising. India’s vast renewable energy potential and competitive LCOE for solar and wind, along with soft cost reduction pathways, could make green hydrogen production more cost-effective than grey or blue hydrogen production. The expected price decline for both electrolysers and renewables indicates that green hydrogen can become competitive with grey hydrogen by 2030, if not earlier. India’s focus on decarbonization and renewable energy development can create a market for green hydrogen production, which can provide a sustainable alternative to fossil fuel-based hydrogen production.